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Tax Software 2005 2006

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Tax Software 2005 2006

Tax software 2005 2006 Publication 721 - Introductory Material Table of Contents Reminders IntroductionOrdering forms and publications. Tax software 2005 2006 Tax questions. Tax software 2005 2006 Useful Items - You may want to see: Reminders Future developments. Tax software 2005 2006  For the latest information about developments related to Publication 721, such as legislation enacted after it was published, go to www. Tax software 2005 2006 IRS. Tax software 2005 2006 gov/pub721. Tax software 2005 2006 Phased retirement. Tax software 2005 2006   The new phased retirement program was signed into law by the Moving Ahead for Progress in the 21st Century Act and will be available for retirement eligible individuals once the regulations for this program are effective. Tax software 2005 2006 This new program will allow eligible employees to begin receiving annuity payments while working part-time. Tax software 2005 2006 For more information, go to the Office of Personnel Management (OPM) website at www. Tax software 2005 2006 opm. Tax software 2005 2006 gov. Tax software 2005 2006 Roth Thrift Savings Plan (TSP) balance. Tax software 2005 2006  You may be able to contribute to a designated Roth account through the TSP known as the Roth TSP. Tax software 2005 2006 Roth TSP contributions are after-tax contributions, subject to the same contribution limits as the traditional TSP. Tax software 2005 2006 Qualified distributions from a Roth TSP are not included in your income. Tax software 2005 2006 See Thrift Savings Plan in Part II for more information. Tax software 2005 2006 Rollovers. Tax software 2005 2006  You can roll over certain amounts from the CSRS, FERS, or TSP, to a tax-sheltered annuity plan (403(b) plan) or a state or local government section 457 deferred compensation plan. Tax software 2005 2006 See Rollover Rules in Part II. Tax software 2005 2006 Rollovers by surviving spouse. Tax software 2005 2006  You may be able to roll over a distribution you receive as the surviving spouse of a deceased employee or retiree into a qualified retirement plan or an IRA. Tax software 2005 2006 See Rollover Rules in Part II. Tax software 2005 2006 Thrift Savings Plan (TSP) beneficiary participant accounts. Tax software 2005 2006  If you are the spouse beneficiary of a decedent's TSP account, you have the option of leaving the death benefit payment in a TSP account in your own name (a beneficiary participant account). Tax software 2005 2006 The amounts in the beneficiary participant account are neither taxable or reportable until you choose to make a withdrawal, or otherwise receive a distribution from the account. Tax software 2005 2006 Benefits for public safety officer's survivors. Tax software 2005 2006  A survivor annuity received by the spouse, former spouse, or child of a public safety officer killed in the line of duty generally will be excluded from the recipient's income. Tax software 2005 2006 For more information, see Dependents of public safety officers in Part IV. Tax software 2005 2006 Uniformed services Thrift Savings Plan (TSP) accounts. Tax software 2005 2006  If you have a uniformed services TSP account, it may include contributions from combat zone pay. Tax software 2005 2006 This pay is tax-exempt and contributions attributable to that pay are tax-exempt when they are distributed from the uniformed services TSP account. Tax software 2005 2006 However, any earnings on those contributions are subject to tax when they are distributed. Tax software 2005 2006 The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. Tax software 2005 2006 If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. Tax software 2005 2006 You can get more information from the TSP website, www. Tax software 2005 2006 tsp. Tax software 2005 2006 gov, or the TSP Service Office. Tax software 2005 2006 Photographs of missing children. Tax software 2005 2006  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Tax software 2005 2006 Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Tax software 2005 2006 You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Tax software 2005 2006 Introduction This publication explains how the federal income tax rules apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. Tax software 2005 2006 These benefits are paid primarily under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Tax software 2005 2006 Tax rules for annuity benefits. Tax software 2005 2006   Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS. Tax software 2005 2006 The rest of your benefits are taxable. Tax software 2005 2006 If your annuity starting date is after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts. Tax software 2005 2006 If your annuity starting date is before November 19, 1996, you generally could have chosen to use the Simplified Method or the General Rule. Tax software 2005 2006 See Part II, Rules for Retirees . Tax software 2005 2006 Thrift Savings Plan. Tax software 2005 2006   The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. Tax software 2005 2006 This plan is similar to private sector 401(k) plans. Tax software 2005 2006 You can defer tax on part of your pay by having it contributed to your traditional balance in the plan. Tax software 2005 2006 The contributions and earnings on them are not taxed until they are distributed to you. Tax software 2005 2006 Also the TSP offers a Roth TSP option. Tax software 2005 2006 Contributions to this type of balance are after tax and qualified distributions from the account are tax free. Tax software 2005 2006 See Thrift Savings Plan in Part II. Tax software 2005 2006 Comments and suggestions. Tax software 2005 2006   We welcome your comments about this publication and your suggestions for future editions. Tax software 2005 2006   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Tax software 2005 2006 NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Tax software 2005 2006 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tax software 2005 2006   You can send your comments from www. Tax software 2005 2006 irs. Tax software 2005 2006 gov/formspubs/. Tax software 2005 2006 Click on “More Information” and then on “Comment on Tax Forms and Publications”. Tax software 2005 2006   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Tax software 2005 2006 Ordering forms and publications. Tax software 2005 2006   Visit www. Tax software 2005 2006 irs. Tax software 2005 2006 gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Tax software 2005 2006 Internal Revenue Service 1201 N. Tax software 2005 2006 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Tax software 2005 2006   If you have a tax question, check the information available on IRS. Tax software 2005 2006 gov or call 1-800-829-1040. Tax software 2005 2006 We cannot answer tax questions sent to either of the above addresses. Tax software 2005 2006 Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 939 General Rule for Pensions and Annuities Form (and Instructions) CSA 1099R Statement of Annuity Paid CSF 1099R Statement of Survivor Annuity Paid W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Tax software 2005 2006 5329 Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Tax software 2005 2006 Prev  Up  Next   Home   More Online Publications
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The Tax Software 2005 2006

Tax software 2005 2006 31. Tax software 2005 2006   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Tax software 2005 2006 Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Tax software 2005 2006 Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Tax software 2005 2006 Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. Tax software 2005 2006 . Tax software 2005 2006  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). Tax software 2005 2006 NIIT is a 3. Tax software 2005 2006 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. Tax software 2005 2006 Use Form 8960, Net Investment Income Tax, to figure this tax. Tax software 2005 2006 For more information on NIIT, go to www. Tax software 2005 2006 irs. Tax software 2005 2006 gov and enter “Net Investment Income Tax” in the search box. Tax software 2005 2006 Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. Tax software 2005 2006 If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Tax software 2005 2006 (See Parent's Election To Report Child's Interest and Dividends , later. Tax software 2005 2006 ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Tax software 2005 2006 (See Tax for Certain Children Who Have Unearned Income , later. Tax software 2005 2006 ) For these rules, the term “child” includes a legally adopted child and a stepchild. Tax software 2005 2006 These rules apply whether or not the child is a dependent. Tax software 2005 2006 Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Tax software 2005 2006 The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Tax software 2005 2006 Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Tax software 2005 2006 Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Tax software 2005 2006 Parents are married. Tax software 2005 2006   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Tax software 2005 2006 Parents not living together. Tax software 2005 2006   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Tax software 2005 2006 If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Tax software 2005 2006   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. Tax software 2005 2006 Parents are divorced. Tax software 2005 2006   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. Tax software 2005 2006 Custodial parent remarried. Tax software 2005 2006   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Tax software 2005 2006 Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Tax software 2005 2006 Do not use the return of the noncustodial parent. Tax software 2005 2006   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Tax software 2005 2006 If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Tax software 2005 2006 Parents never married. Tax software 2005 2006   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. Tax software 2005 2006 If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Tax software 2005 2006 Widowed parent remarried. Tax software 2005 2006   If a widow or widower remarries, the new spouse is treated as the child's other parent. Tax software 2005 2006 The rules explained earlier under Custodial parent remarried apply. Tax software 2005 2006 Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Tax software 2005 2006 If you do, your child will not have to file a return. Tax software 2005 2006 You can make this election only if all the following conditions are met. Tax software 2005 2006 Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Tax software 2005 2006 Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Tax software 2005 2006 The child's gross income was less than $10,000. Tax software 2005 2006 The child is required to file a return unless you make this election. Tax software 2005 2006 The child does not file a joint return for the year. Tax software 2005 2006 No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Tax software 2005 2006 No federal income tax was taken out of your child's income under the backup withholding rules. Tax software 2005 2006 You are the parent whose return must be used when applying the special tax rules for children. Tax software 2005 2006 (See Which Parent's Return To Use , earlier. Tax software 2005 2006 ) These conditions are also shown in Figure 31-A. Tax software 2005 2006 Certain January 1 birthdays. Tax software 2005 2006   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Tax software 2005 2006 You cannot make this election for such a child unless the child was a full-time student. Tax software 2005 2006   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Tax software 2005 2006 You cannot make this election for such a child. Tax software 2005 2006 Full-time student. Tax software 2005 2006   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. Tax software 2005 2006 A school includes a technical, trade, or mechanical school. Tax software 2005 2006 It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax software 2005 2006 How to make the election. Tax software 2005 2006   Make the election by attaching Form 8814 to your Form 1040. Tax software 2005 2006 (If you make this election, you cannot file Form 1040A or Form 1040EZ. Tax software 2005 2006 ) Attach a separate Form 8814 for each child for whom you make the election. Tax software 2005 2006 You can make the election for one or more children and not for others. Tax software 2005 2006 Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Tax software 2005 2006 Rate may be higher. Tax software 2005 2006   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Tax software 2005 2006 This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Tax software 2005 2006 However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Tax software 2005 2006 Deductions you cannot take. Tax software 2005 2006   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Tax software 2005 2006 The additional standard deduction if the child is blind. Tax software 2005 2006 The deduction for a penalty on an early withdrawal of your child's savings. Tax software 2005 2006 Itemized deductions (such as your child's investment expenses or charitable contributions). Tax software 2005 2006 Reduced deductions or credits. Tax software 2005 2006   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. Tax software 2005 2006 Deduction for contributions to a traditional individual retirement arrangement (IRA). Tax software 2005 2006 Deduction for student loan interest. Tax software 2005 2006 Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Tax software 2005 2006 Credit for child and dependent care expenses. Tax software 2005 2006 Child tax credit. Tax software 2005 2006 Education tax credits. Tax software 2005 2006 Earned income credit. Tax software 2005 2006 Penalty for underpayment of estimated tax. Tax software 2005 2006   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Tax software 2005 2006 If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Tax software 2005 2006 See chapter 4 for more information. Tax software 2005 2006 Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Tax software 2005 2006 Only the amount over $2,000 is added to your income. Tax software 2005 2006 The amount over $2,000 is shown on Form 8814, line 6. Tax software 2005 2006 Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Tax software 2005 2006 Include the amount from Form 8814, line 12, on Form 1040, line 21. Tax software 2005 2006 Enter “Form 8814” on the dotted line next to line 21. Tax software 2005 2006 If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. Tax software 2005 2006 Capital gain distributions and qualified dividends. Tax software 2005 2006   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. Tax software 2005 2006 If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. Tax software 2005 2006 Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Tax software 2005 2006 This tax is added to the tax figured on your income. Tax software 2005 2006 This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. Tax software 2005 2006 Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. Tax software 2005 2006 Check box a on Form 1040, line 44. Tax software 2005 2006 Figure 31-A. Tax software 2005 2006 Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Tax software 2005 2006 Figure 31–A. Tax software 2005 2006 Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Tax software 2005 2006 If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Tax software 2005 2006 Attach the completed form to the child's Form 1040 or Form 1040A. Tax software 2005 2006 When Form 8615 must be filed. Tax software 2005 2006   Form 8615 must be filed for a child if all of the following statements are true. Tax software 2005 2006 The child's investment income was more than $2,000. Tax software 2005 2006 The child is required to file a return for 2013. Tax software 2005 2006 The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Tax software 2005 2006 At least one of the child's parents was alive at the end of 2013. Tax software 2005 2006 The child does not file a joint return for 2013. Tax software 2005 2006 These conditions are also shown in  Figure 31-B. Tax software 2005 2006 Earned income. Tax software 2005 2006   Earned income includes salaries, wages, tips, and other payments received for personal services performed. Tax software 2005 2006 It does not include unearned income as defined later in this chapter. Tax software 2005 2006 Support. Tax software 2005 2006   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Tax software 2005 2006 To figure your child's support, count support provided by you, your child, and others. Tax software 2005 2006 However, a scholarship received by your child is not considered support if your child is a full-time student. Tax software 2005 2006 See chapter 3 for details about support. Tax software 2005 2006 Certain January 1 birthdays. Tax software 2005 2006   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Tax software 2005 2006 Figure 31-B. Tax software 2005 2006 Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Tax software 2005 2006 Figure 31-B. Tax software 2005 2006 Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. Tax software 2005 2006 . Tax software 2005 2006 . Tax software 2005 2006 THEN, at the end of 2013, the child is considered to be. Tax software 2005 2006 . Tax software 2005 2006 . Tax software 2005 2006 January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Tax software 2005 2006 The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Tax software 2005 2006  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Tax software 2005 2006  ***Do not use Form 8615 for this child. Tax software 2005 2006 Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Tax software 2005 2006 (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Tax software 2005 2006 ) On line C, check the box for the parent's filing status. Tax software 2005 2006 See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. Tax software 2005 2006 Parent with different tax year. Tax software 2005 2006   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Tax software 2005 2006 Parent's return information not known timely. Tax software 2005 2006   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Tax software 2005 2006   You can use any reasonable estimate. Tax software 2005 2006 This includes using information from last year's return. Tax software 2005 2006 If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Tax software 2005 2006    When you get the correct information, file an amended return on Form 1040X, Amended U. Tax software 2005 2006 S. Tax software 2005 2006 Individual Income Tax Return. Tax software 2005 2006   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Tax software 2005 2006 S. Tax software 2005 2006 Individual Income Tax Return. Tax software 2005 2006 Extensions are discussed in chapter 1. Tax software 2005 2006 Step 1. Tax software 2005 2006 Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Tax software 2005 2006 To do that, use Form 8615, Part I. Tax software 2005 2006 Line 1 (unearned income). Tax software 2005 2006   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Tax software 2005 2006 Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. Tax software 2005 2006 Form 1040EZ cannot be used if Form 8615 must be filed. Tax software 2005 2006   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Tax software 2005 2006   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. Tax software 2005 2006 Unearned income defined. Tax software 2005 2006   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. Tax software 2005 2006 It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. Tax software 2005 2006 Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Tax software 2005 2006 Nontaxable income. Tax software 2005 2006   For this purpose, unearned income includes only amounts the child must include in total income. Tax software 2005 2006 Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Tax software 2005 2006 Income from property received as a gift. Tax software 2005 2006   A child's unearned income includes all income produced by property belonging to the child. Tax software 2005 2006 This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Tax software 2005 2006   A child's unearned income includes income produced by property given as a gift to the child. Tax software 2005 2006 This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Tax software 2005 2006 Example. Tax software 2005 2006 Amanda Black, age 13, received the following income. Tax software 2005 2006 Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. Tax software 2005 2006 Amanda's unearned income is $2,100. Tax software 2005 2006 This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). Tax software 2005 2006 Her wages are earned (not unearned) income because they are received for work actually done. Tax software 2005 2006 Her tax-exempt interest is not included because it is nontaxable. Tax software 2005 2006 Trust income. Tax software 2005 2006   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Tax software 2005 2006   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. Tax software 2005 2006 Line 2 (deductions). Tax software 2005 2006   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. Tax software 2005 2006   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. Tax software 2005 2006 Directly connected. Tax software 2005 2006   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Tax software 2005 2006 These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Tax software 2005 2006   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Tax software 2005 2006 Only the amount greater than 2% of the child's adjusted gross income can be deducted. Tax software 2005 2006 See chapter 28 for more information. Tax software 2005 2006 Example 1. Tax software 2005 2006 Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. Tax software 2005 2006 His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Tax software 2005 2006 Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. Tax software 2005 2006 Example 2. Tax software 2005 2006 Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Tax software 2005 2006 She has no other income. Tax software 2005 2006 She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. Tax software 2005 2006 Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Tax software 2005 2006 The amount on line 2 is $2,050. Tax software 2005 2006 This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Tax software 2005 2006 Line 3. Tax software 2005 2006   Subtract line 2 from line 1 and enter the result on this line. Tax software 2005 2006 If zero or less, do not complete the rest of the form. Tax software 2005 2006 However, you must still attach Form 8615 to the child's tax return. Tax software 2005 2006 Figure the tax on the child's taxable income in the normal manner. Tax software 2005 2006 Line 4 (child's taxable income). Tax software 2005 2006   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. Tax software 2005 2006   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. Tax software 2005 2006 929. Tax software 2005 2006 Line 5 (net unearned income). Tax software 2005 2006   A child's net unearned income cannot be more than his or her taxable income. Tax software 2005 2006 Enter on Form 8615, line 5, the smaller of line 3 or line 4. Tax software 2005 2006 This is the child's net unearned income. Tax software 2005 2006   If zero or less, do not complete the rest of the form. Tax software 2005 2006 However, you must still attach Form 8615 to the child's tax return. Tax software 2005 2006 Figure the tax on the child's taxable income in the normal manner. Tax software 2005 2006 Step 2. Tax software 2005 2006 Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. Tax software 2005 2006 The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Tax software 2005 2006 When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Tax software 2005 2006 For example, do not refigure the medical expense deduction. Tax software 2005 2006 Figure the tentative tax on Form 8615, lines 6 through 13. Tax software 2005 2006 Note. Tax software 2005 2006 If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. Tax software 2005 2006 Line 6 (parent's taxable income). Tax software 2005 2006   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. Tax software 2005 2006   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. Tax software 2005 2006 Line 7 (net unearned income of other children). Tax software 2005 2006   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Tax software 2005 2006 Do not include the amount from line 5 of the Form 8615 being completed. Tax software 2005 2006 Example. Tax software 2005 2006 Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Tax software 2005 2006 The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Tax software 2005 2006 Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Tax software 2005 2006 Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Tax software 2005 2006 Other children's information not available. Tax software 2005 2006   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Tax software 2005 2006 See Parent's return information not known timely , earlier. Tax software 2005 2006 Line 11 (tentative tax). Tax software 2005 2006   Subtract line 10 from line 9 and enter the result on this line. Tax software 2005 2006 This is the tentative tax. Tax software 2005 2006   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Tax software 2005 2006 Also skip the discussion for lines 12a and 12b that follows. Tax software 2005 2006 Lines 12a and 12b (dividing the tentative tax). Tax software 2005 2006   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. Tax software 2005 2006 This is done on lines 12a, 12b, and 13. Tax software 2005 2006 Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Tax software 2005 2006 Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. Tax software 2005 2006 Example. Tax software 2005 2006 In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. Tax software 2005 2006 The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). Tax software 2005 2006 The decimal on line 12b is  . Tax software 2005 2006 333, figured as follows and rounded to three places. Tax software 2005 2006   $800 = . Tax software 2005 2006 333     $2,400   Step 3. Tax software 2005 2006 Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. Tax software 2005 2006 This is the child's tax. Tax software 2005 2006 It is figured on Form 8615, lines 14 through 18. Tax software 2005 2006 Alternative minimum tax. Tax software 2005 2006   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. Tax software 2005 2006 See Alternative Minimum Tax (AMT) in chapter 30. Tax software 2005 2006    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. Tax software 2005 2006 For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. Tax software 2005 2006 Prev  Up  Next   Home   More Online Publications